New securities guidelines make it easier for public companies to issue stock at market prices
With capital always harder to access in uncertain times, more relaxed rules for companies to raise money through an "At The Market" (ATM) equity program is a welcome addition to the Canadian markets, says Michael Urbani, partner with Stikeman Elliott in Vancouver.
"They [ATMS] are an attractive alternative to traditional equity offerings," Urbani says. "They allow an issuer to raise capital by creating new shares, and then selling those shares on an exchange at market prices from time to time, at its discretion."
Stikeman Elliott acted as counsel to Ballard Power Systems to establish an ATM equity program, which allows it to issue US $250 million common shares on the TSX or NASDAQ at the prevailing market price at the time of sale. Ballard announced the program on September 1.
ATMs have been available as a capital-raising tool in Canada since 2000, and have been quite popular in the U.S., Urbani says. Still, they were not used in Canada much because of a cumbersome process for launching them here and skepticism raised by the banking community.
They have slowly started to appear more frequently, and companies with dual listings in the U.S. and Canada have often used the model south of the border. Ballard, for example raised US $75 million through an ATM in the spring.
But Urbani says that with the liberalization of the ATM regime, announced by the Canadian Securities Administration (CSA) in June and put in place August 31, he expects it to be used more often.
Under previous National Instrument 44-102 (NI 44-102) rules, launching a Canadian ATM on a Canadian exchange required "exemptive relief" from such an offering's prospectus delivery rules. To complete this process could take four to six weeks, and "that was quite cumbersome," Urbani says.
The old rules also applied two caps on the overall size of the ATM program. The first was that no more than 10% of shares representing the stock's aggregate market value could be issued. The second was that no more than 25% of the stock's average daily trading volume could be sold on any day.
Kerry Hillier, General Counsel for Ballard, which trades on both the TSX and NASDAQ, says the amendments have streamlined the process, which has "reduced the cost, timing and complexity of ATM offerings in Canada."
With the adoption of the amendments, the CSA has more closely aligned the ATM regime with that found in the U.S., Urbani says, making them a far more practical option for raising capital than previously. It also puts Canadian companies that trade only on a Canadian exchange on an equal footing with dual-listed Canadian companies that can issue shares through an ATM in the U.S.
Ballard's Hillier adds: "As a dual-listed issuer, the amendments have made it much easier for Ballard to launch a cross-border ATM offering. Having similar rules in Canada and the U.S. greatly simplifies the process for us and reduces the cost and complexity, which is a great advantage."
Already, the impact of the liberalization of ATM rules is evident, Urbani says. In the past, there may have been only a few deals in a year. However, since September, there have been two other ATM issues besides Ballard's – a US $20-million issue by Metalla Royalty & Streaming, and a US $150-million issue by WPT Industrial Real Estate Investment Trust.
ATMs have always had an advantage over a prospectus or private placement offering when it comes to the cost of setting up and reduced commissions and marketing costs. But there is even more of an advantage now, Urbani says, as shares now sell at market price. The new rules make the potential advantage of ATMs clearer, Urbani says.
For example, in a prospectus offering or private placement, the shares offering price remains the same until they start trading on the exchange, and there is always a risk that not all the shares offered will be sold. With an ATM, Urbani says, once the program is up and running, the issuer puts the shares issued through an ATM on the market whenever it feels conditions are right.
Hillier says ATMs give issuers "more discretion regarding size, price and terms compared to more traditional offerings and allow access to financing on an ongoing basis, as needed."
Urbani says that investors – retail or otherwise – don't know that their shares may be shares issued through an ATM. "You're just putting up an order to buy, and somebody is filling that order, You don't know that in this case, it is the company filling the order through an ATM."
There is no sector or type of company best suited for an ATM, Urbani says, but an ATM issue tends to work for companies with reasonably liquid shares on an exchange. That's because these liquid stocks are less likely to be affected to the downside if the issuing company puts additional shares on the market. There is less chance of an overhang, he says, noting such potential was in the past one of the initial reasons there was less receptiveness to the ATM model.
Events such as the Covid-19 pandemic can create a constraint on raising capital, so another source of funding for Canadian-only issuers is very welcome, Urbani says. With the new amendments, "ATMS are tailor made for the Covid era."